Innovation and Top Income Inequality

Philippe Aghion, College de France, Ufuk Akcigit, University of Chicago and NBER, Antonin Bergeaud, Banque de France,Richard Blundell, University College London, Institute of Fiscal Studies, IZA, and CEPR, and David Hemous, University of Zurich and CEPRPosted onMay 20, 2018

In this paper we use cross-state panel and cross-US commuting-zone data to look at the relationship between innovation, top income inequality and social mobility. We find positive correlations between measures of innovation and top income inequality. We also show that the correlations between innovation and broad measures of inequality are not significant. Next, using instrumental variable analysis, we argue that these correlations at least partly reflect a causality from innovation to top income shares. Finally, we show that innovation, particularly by new entrants, is positively associated with social mobility, but less so in local areas with more intense lobbying activities.